Sherzer v. Homestar Mortgage Services: The Third Circuit Takes Sides in a Circuit Split Over How a Borrower Exercises Rescission Rights Under TILA

In a recent decision, the Third Circuit took sides in a split between U.S. Circuit Courts of Appeal over what action borrowers must take to exercise their right to rescind a loan under the Truth in Lending Act (TILA). It ruled that borrowers need only send lenders valid notice within the time allowed under the statute in order to rescind a loan agreement.

TILA requires lenders to make certain disclosures of credit terms to potential borrowers. Even if borrowers receive these disclosures, they have an absolute right to rescind a loan secured by a principal dwelling for a period of three days after closing on the loan. If they get the disclosures after the loan commences, they have three days to rescind the loan after they are received. If they never receive the requisite disclosures, the right to rescind “expire[s] three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first.” 15 U.S.C. § 1635(f).

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